Mini-boom in living standards is over, says think tank

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A "mini-boom" in living standards has ended according to a report by the Resolution Foundation.

The think tank says living standards improved significantly between 2014 and the beginning of 2016, as subdued inflation coincided with rising wages and employment.

But a rise in inflation late in 2016, coupled with slower income growth, has ended that boom, it argues.

The conclusions are part of its annual report, published later this week.

The Resolution Foundation estimates that incomes in working-age households have grown just 0.5% in the current financial year, the slowest pace since 2012-13.

"After a tight squeeze during the [financial] crisis, working-age households have enjoyed a living standards mini-boom in recent years," said Stephen Clarke, economic analyst at the Resolution Foundation.

"But fast-rising inflation this year has brought this all too short mini-boom to a sharp halt as pay rises have not kept up," he said.

The most recent official measure of UK inflation, released earlier this month, showed a sharp rise in inflation to 1.6%.

Higher costs for imported materials and fuels were behind the rise.

Brexit 'myth'

Some economists feel the Resolution Foundation is being too gloomy.

Professor Patrick Minford, chair of Economists for Brexit said the Foundation has followed the consensus view that the economy would slow sharply in 2017.

However, "this consensus view has had to be revised up steadily over the past six months" and further upward revisions are likely, Prof Minford said.

"The 'Brexit uncertainty' factor has proved to be a myth," he added.

Prof Minford conceded rising household incomes were likely to slow this year, but added that the long-term economic outlook still looked bright, partly because consumers and businesses would continue to borrow.

'Chronic' productivity

Mr Clarke called on the government to help mitigate the effects of rising prices.

"While there's little that the government can do to stop rising inflation eating into people's living standards this year, there is still plenty of scope to boost pay packets and get employment rising again," he said.

"Closing the large jobs gaps that still exist across big cities like Birmingham and Liverpool would boost household incomes and help send Britain to the top of the global employment league.

"And of course tackling Britain's chronic productivity problems holds the key to maintaining decent pay growth in the years ahead," he added.

The foundation's report notes that falling mortgage costs have given householders a boost and pensioner incomes have been growing more strongly.

The UK economy grew 2% in 2016, driven by strong consumer spending.

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